Had the collective IQ assembled yesterday in Oxford's Sheldonian Theatre been set a task like deducing the grand unified theory or resolving the West Lothian question, one suspects they might have polished it off in a couple of minutes.

But matters relating to the government of Britain's oldest university are rarely so trifling. Yesterday more than 800 of the world's most eminent academics gathered in Sir Christopher Wren's theatre to debate how the university should be run. Two hours of rancorous discussion and 17th century discomfort later, the full implications of what they had resolved remained a conundrum.

At issue was a proposal by the university's vice-chancellor, John Hood, to change the structures by which the 900-year-old institution is governed. At present, the university's principal decision-making body is the council, a 26-member board charged with overseeing everything from academic policy to strategic and financial planning.

Council members are appointed by the congregation, made up of 3,700 members of the academic staff. Each of them is attached to one of the university's 39 colleges, which operate under a system which, according to the university website is "not unlike the United States".

Dr Hood believes this is not the best way to run a modern university. Oxford, however, is not so easily reformed. The vice-chancellor, a New Zealander appointed to the post in 2004, proposed transferring control to a new council of 15 trustees, a numerical majority of whose members would, in the dark parlance of his critics, be "outsiders" - individuals with business and management experience but no direct connection to the university.

Was this a sensible and long overdue reform, calculated to inject much needed professionalism into a dusty institution? Or an outrageous threat to the university's long history of academic independence? On this, the great minds did not think alike. At the close of the debate, the dons voted to amend slightly Dr Hood's proposal, and to reconvene in a fortnight to discuss the whole thing all over again.

The difficulty facing the university is that, while it is regarded as one of the finest academic institutions in the world, its competitors outside the UK enjoy much more lavish funding, thanks in the main to endowments from alumni. And, while many Oxford insiders argue that the university's traditions are its greatest strength, others contend that more professionalism is long overdue. The university loses £5,000 a year for every undergraduate it teaches and this year faces a budget deficit of £8m.

David Womersley, professor of English literature, fellow of St Catherine's College, member of the governance working party and member of the university council, ticked off the boxes in favour of reform. Donald Fraser, professor of earth sciences, fellow of Worcester College, member of the university council, hit back.

The council was over-burdened, its membership lacked expertise and its structure made coordination difficult, Prof Womersley suggested, making the proposed restructuring an urgent necessity.

On the contrary, argued Prof Fraser, such a move "would destroy the efficiency of plurality. It would destroy collegiality. It would impose a cousin of dumbed down sector-norm governance." His supporters nodded sagely. Seven professors, one provost, one master, one principal, two lecturers, a tutor and a chaplain later, fellows filed out of the theatre to cast their votes.

Across the street in the King's Arms pub, Joe O'Connor and Nathan Bennett, first year students at Keble College, were celebrating completion of a production of Much Ado About Nothing. They had heard little about the proposals but said they would be concerned if they represented creeping privatisation. "But does it really affect us as students?" asked Mr Bennett. Mr O'Connor added that Oxford "possibly does over-value itself, but that's what makes it Oxford".

An hour later, back at the Sheldonian, it was settled: the proposed amendment - that the congregation would have the opportunity, after five years, to tip the balance of the council in favour of university insiders - was carried. Members will now return on November 28 to decide whether to accept the amended proposal, or reject the entire thing. In the interim, further amendments may be proposed.

A delighted Prof Womersley said the result was "a body blow for the opponents of governing reform." Of some of criticisms of the proposed change, he had remarked earlier: "You would think we were intending to hand over governance to a body that is completely alien to the university - like the Felixstowe Port Authority or something."

One would hope not. Part of the port of Felixstowe is owned by Trinity College, Cambridge.

FAQ The shake-up

What is all the fuss about?

Main plan is to replace 26-member governing council, of mostly academics, with seven outsiders and seven internal members plus Chris Patten. Supporters say business expertise and less cumbersome governance is needed. The university has a budget of £500m a year, with 25,000 staff and students. Endowments across the colleges equal £3.9bn

What's wrong with the changes?

End of academic self-rule, with the lay council at the mercy of the executive. It is thought academics know best. Present checks and balances, including the veto of the 3,700-member don's parliament, offer "better scrutiny" than an academic board with powers delegated by council

What's the real problem?

Oxford is short of cash, despite its wealth. Advocates of change want a business-like approach; opponents say a system stacked in favour of the executive could steamroller through decisions

What happens next?

Licking of wounds if plan proceeds. If not, position of Oxford's chancellor, Chris Patten, and vice-chancellor, John Hood, possibly precarious